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Hatt v. Commissioner - Docket Nos. 5225-66, 5226-66., 1969 Tax Ct. Memo LEXIS 66 (T.C. Oct. 28, 1969)

Rule:

The "condition of his employment" requirement of section 119 means that the employee must be required to accept the lodging in order to enable him properly to perform the duties of his employment. Lodging will be regarded as furnished to enable the employee properly to perform the duties of his employment when, for example, the lodging is furnished because the employee is required to be available for duty at all times.

Facts:

Hatt met and married Echols, the president and majority stockholder of Johann. Johann was an Indiana corporation that ran a funeral home in Evansville, Indiana. After Hatt and Echols married, Echols transferred a majority of her shares to Hatt and made him president and general manager of Johann. Hatt moved in with Echols, who lived in an apartment in the same building as the funeral home. Evidence demonstrates that it was customary in the area for funeral homes to have someone live in the same building as the funeral home in order to accommodate customers.

Issue:

Is Hatt is entitled to exclude from his gross income a sum equal to the fair rental value of an apartment which he occupied on the premises of Johann?

Answer:

Yes.

Conclusion:

Section 119 grants an exclusion from gross income of the value of lodging furnished to an employee if three conditions are met: (1) The lodging is on the business premises of the employer; (2) the employee is "required to accept such lodging as a condition of his employment"; and (3) the lodging is furnished for the convenience of the employer. The facts that Hatt was the president and majority stockholder of Johann necessitate careful scrutiny of the arrangement but do not alone disqualify Hatt for the exclusion or Johann for the claimed deductions.

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